Focus on the Social Plan More than AssessmentWed, 02/22/2017 - 09:29
Q: What motivated ANAF Energy to include social impact assessments and indigenous consultation in its portfolio?
A: The Electricity Industry Law and the Hydrocarbons Law now require Social Impact Assessments (SIAs) as a mandatory requirement for energy projects. The important part is not the assessment per se but the successful implementation of the social management plan. The goal of the new law is to return part of a project’s profits to the community as compensation for any negative impact it might cause. We want companies to be aware that producing positive results for communities is far more important than just complying with the paperwork. To write the social regulations accompanying the new laws, the Mexican government considered the principles and the methodology of the International Association of Impact Assessment (IAIA) and the International Petroleum Industry Environmental Conservation Association (IPIECA).
Complying with corporate social responsibility implies matching a project’s profitability to the community’s needs to create a sustainable model in harmony with human rights, while guaranteeing the long-term viability of investments. I had the opportunity to gain experience in this matter during my time as a director of an investment fund for agribusiness. I worked closely with ejidatarios and rural communities during this period to develop productive projects, some of which are still in operation 20 years later and are seen as successes. This experience comes in handy for ANAF Energy’s social department because it gives us perspective on how to develop successful community projects using a productive approach and taking into account the limited resources companies have to support these initiatives.
Q: What main opportunity areas have you identified in the social impact legislation?
A: The enforcement of the social management plan is the most important element of the new legislation. The focus should go beyond the authorization of the assessment for the sake of compliance and instead look to bring actual benefits to the community. By approaching the communities correctly and explaining the benefits, the project will have the required social license to operate. But companies must ensure there are actual benefits if they are to build a successful relationship. The idea is to generate a win-win situation.
Q: What common mistakes do companies make and how can these be avoided?
A: One of the main challenges faced by power companies is the lack of social knowledge. Engineers, technicians and other decision-makers do not have the required social and anthropological knowledge to manage social impact projects. It is not part of their core competencies. Therefore, companies should hire specialized parties to perform adequate SIAs. Failing to build agreements with communities is one of the reasons an energy project may not materialize. Dialogue and understanding are the only way to permanently and efficiently resolve social issues. Many companies tend to solve these issues through economic compensation instead of looking for joint solutions.
Another common mistake is to allow inexperienced people to deal with local authorities and establish agreements that do not always reach all the involved stakeholders. Following the anti-corruption guidelines of the Organization for Economic Development (OECD) and the World Bank’s standards for SIAs helps to ensure the successful implementation of a project so we include them in all our processes.
In the case of indigenous territories and communities, the regulatory framework follows the principles established in the International Labor Organization (ILO) Convention 169, related to indigenous and tribal people’s rights. These principles state the mandatory nature of performing previous, free and informed consultation to comply with international regulations. This process can only be performed under the Ministry of Energy’s supervision but consultancies can help with the process by addressing the companies’ needs and possibilities.
Project developers also need to be aware that all completed agreements must be based on the legal framework, for instance in the case of municipal permits or communal assemblies.
Q: How can companies balance economic competitiveness against community benefits?
A: There is no exact formula to achieve such a balance. The current regulatory framework does not establish a mechanism to define the social retribution percentage that must be considered in each type of project. The compensation that will be allocated to the different identified activities will be defined in the social management plans. We have indicators that take into account the investment needs, the affected population and the infrastructure required by the project that also will be beneficial to the community. The combination of such factors will give a coefficient to calculate the equilibrium between economic competitiveness and community benefits.
Q: What is the added value that ANAF Energy brings to a project’s social dimension?
A: The first step in our process is to develop the SIA, which includes a baseline study to understand the community through a set of variables. We have developed a social database that includes 32 states, 2,400 municipalities and over 120,000 communities, incorporating information from sources such as CONEVAL, INEGI, the Ministry of Urban and Territorial Development (SEDATU) and the Ministry of Agriculture, Farming, Rural Development, Fisheries and Food (SAGARPA). The fact that our database is built at municipal and community levels sets us apart from other consultancies and gives us a deeper local perspective. The initial analysis allows us to identify the needs of the community that must be worked out with the company and the stakeholders in the social management plan. The challenge is to ensure social management plans do not get politicized.
There should always be an open dialogue to establish where the company’s commitments end and the government’s responsibilities begin. We all strive for social and economic progress. Mexico has the huge task of validating in practice the energy sector transformation it has envisioned in the reform, particularly in the electricity segment. It has already achieved some of the most competitive prices for renewables globally, promoted clean energy investment and identified potential benefits for the local communities in which the projects will be built.